Suominen (Helsinki:SUY1V) Q2 2024 Earnings Call

0:01 Good day and welcome to Suominen's Q2 result audiogast. My name is Julia Koivalanaho and I'm the interim head of Suominen Communications. Next, our president and CEO Tommi Björman and CFO Janne Silonsaari will present the result. Janne, Tommi, the floor is yours.

0:20 Thank you, Julia, and good morning, everybody. Thank you for joining this second quarter of 2024 release discussion agenda. Yeah, we will do so that actually I will go through the second quarter in brief as well as the first half of 2024. Then Janne will continue with the financial reviews and then I will progress with the strategy and give you the outlook of 2024. And after that Julia will take care of the questions and answers if you may have any of them. So if we look at the first, the second quarter in brief, so we saw five percent increase on our top line then amounting 118.7 million euros which was mainly driven by the increase of the volume and especially the volume search in in the United States and then that drove of course partially the comparable EBITDA to 5 million comparing to the previous region to 2.7 million, which was actually not only driven by the volume, but as well as the improved sales mix.

1:37 And then driving the whole business overall, the cash flow from the operation ended up in 2.1 million, comparably previous year it was 6.4 million. And then in order to look at briefly the whole second half, the first half of the year, excuse me, We can see that the total amount of the sales was 232 million euros. Janne will come a little bit details about how it was composed. And then comparable EBITDA during the first half of the year was 9.5 million, which was a bit more, 4.2 million better than previous period, which we could say that actually at this case, you know it is satisfactory based on the situation where we are today.

2:24 Of course then the cash flow was slightly negative and also that on the negative side so that compared to last year so we have some explanation coming from Janne that what was driving mainly those deviations compared to last year. But all in all you know the second quarter and first half of the year we could see that the improvement continued as seen in the numbers okay Janne please let's look at the financials

2:58 All right, good morning on my behalf as well. So as Tommi mentioned in the key figure summary on previous slide, net sales increased roughly 6 million or about 5% to 119 million. We have been able to increase the sales volumes, but sales prices have been lower driven by the lower raw material prices. Slightly positive currency impact on Q2. We saw basically the same amount negative on Q1, so the year-to-date level no impact from the currencies. We continued the good trend on the new product sales. As a reminder, that means the products that we have commercialized during the past three years with the sales exceeding 37% of net sales. So we keep on reshaping our portfolio according to our strategy and to watch the more sustainable products. On year-to-date level, after first half of the year, the net sales are 232 million.

3:55 Last year, H1 being slightly below 230 million. Then on EBITDA, the next slide, comparable EBITDA in Q2 was 5 million, as Tommi mentioned, so we have seen a clear improvement from previous year and small step from the Q1 this year. The main drivers for improvement were increased sales volumes, especially in America's region, and better sales margins. There was a minor impact from the currencies, nothing major, and we can say that the gradual improvement continued, but we are still facing some challenges on our internal efficiency actions and how they contribute.

4:41 And first half of the year, as said, the EBITDA has totaled 9.5 million euros. Here is a consolidated statement of profit and loss mentioning items affecting comparability. Those are costs related to the Mozart plant closer and restructuring program that we announced the end of the May. In Q2 there was 1.2 million euro severance cost book related to restructuring activities. and regarding the Mozart The Closer, which is targeted to be finalized by the end of the year, we actually saw a small positive impact, roughly 200,000 during the Q1. So really, really the minor cost and any more positive from there.

5:28 And then on cash flow, the next slide, cash flow from operations was €2.1 million in Q2, resulting first half of the year on close to the zero. And decrease in the cash flow from operations in the first half was mainly due to the negative change in the networking capital. This is really driven by the increased inventory levels and some mix on higher receivables or customer mix driven the higher receivables. On inventories, we have reacted on the challenges on global supply chain. We see that the situation will balance on second half of the year, but at the same time, we want to secure the supply security. So that has really been the main impact on networking capital, but nothing major there either.

6:17 Next strategy and back to you, Tommi.

6:20 Okay, thank you, Janne. Thank you for the brief summary. So let's look at that. In order to look at our vision, mission, strategy, the strategy focus areas and values, of course, we continue with our improvement actions and activities within the company. and as seen from already in the increase of the new product sales up to 37% of the top line, it will also reinforce that we are moving to the right direction. Just as a reminder, this strategy frame is between the years 2020 and 2025 and we are already in the process of a little bit reshaping this and it's very probable that before the end of the year we will come with some more fine-tuned strategy once moving forward.

7:12 Execution is the important part and we continue executing this strategy. and as a part of that execution of the strategy we already announced in may the investment in the united states to focus more sustainable products that is proceeding well it it will be uh it will start according to the plan what we had during the first half of 2020 And at the same time, like Janne already mentioned, we started a small restructuring program as a part of our transformation journey that is also progressing well. And we look forward for the savings, like say the annual savings expected next year is actually 1.5 million.

8:01 And the aim is to also to close this program before the end of third quarter. But of course, once that is closed, we will announce you. and then I'm pleased to inform you as well that we continue our journey of increasing the capacity in the sustainable products and also yesterday based on the border solution we are going to make a new investment increase in the capacity of the CPC products in Alicante The investment roughly is 20 million, and it is expected to be completed the second half of 2025. This is very exciting, of course. as a company we need to make sure that the base business is running well and we plan properly for the future growth which is actually this is an indication of that and one important cornerstone of the execution of the strategy then coming going forward to the outlook of 2024 and as in the previous course so We stay the same so that we say that in 2024 it is expected that our profitability EBITDA will increase from 15.8 million as it was last year. We keep the outlook the same.

9:32 Of course in the market overall if we look at there are certain uncertainties but of course we can also see some slightly positive signs or the areas where we can see that some part of the markets are fairly stable. So, you know, Julia, back to you. So any questions or answers?

9:53 Yes. So now it is time for questions. Are there any questions from the lines? If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Joni Sandvall from Nordea. Please go ahead.

10:23 Yes, thanks Tomi and Janne for the presentation. Maybe starting with the volume development, can you please elaborate a bit more? You said that America's volume development was positive, but how about EMEA? Was it positive also there?

10:41 Maybe I can, I can take it. I can talk in a rough number. So I would say that actually we saw the positive development in both of the areas. So, but slightly less in Europe and the main driver for the volume growth was coming from United States. So if I would say roughly two thirds from United States and one third from Europe.

11:05 Okay. Okay. Perfect. Then maybe a little bit about outlook on the markets. I think you mentioned that you expect no major changes there. How is the visibility currently in the market if you compare for example situation in Q1?

11:25 I would say that the market and the visibility have remained roughly the same. The market situation is, if you look at the, we need to look at them a little bit differently. So if we look at Europe, Europe is a market where there is a fairly fierce competition because of the structure of the market. There are more players in Europe. So the market situation in Europe, it's of course, it's tight. but I would say it's stable. I can't say that it's very positive, but I would say it's more stable. While in the United States, it's less, uh less consolidated market of course there are a little bit less players the market situation is because of the overall economy it has been driven quite well i can't say it's extremely good but i would say that it's somewhat better that in in europe and continues to be fairly good and then if we look at latin america Latin America the first half or the first quarter of the year was a little bit softer and we are expecting that the second half of the year will be somewhat stronger so net net in order to look at the global picture I would say that it's fairly fairly stable in our business of course we need to remember this is a consumable product mainly driven

12:55 by the baby care business.

12:59 Okay, that's clear. Maybe to Jan, sales and marketing expenses were up sequentially on year-on-year basis. Was there some one-off type investments or costs here?

13:14 Well, know any specific in that sense but yes we have had certain let's say project type of a course that we have been posted as as an opex on on that site so yes that has been mainly driven it's not not really any any like specific items in that sense but naturally we have been also investing on the R&D side and having a good activity on that side. So new products and the general development that we have been doing there in order to shape the portfolio on more, let's say, sustainable and more profitable direction.

13:59 Okay, that's clear. Maybe then, follow up on the on the cash flow situation and on the working capital it's it's we see the clearly negative impact during the h1 and also in q2 so so you said that you have made uh made some some actions on the on the inventory level so so how should we expect now the the working capital changes during the h2

14:26 Well, I do believe clearly, and it's a clear target that we will improve there. That's clear. I would say that there's a little bit question mark for the Q3, but Q4, I do believe that we will see a clear improvement on the inventories. So accounts receivable, it's more on the customer mix, and that's... It's not nearly as big part of the impact as our inventory. So we have consciously taking a decision of having a little bit buffer due to the challenges on the global supply chain. And we do see that it will slowly stabilizing again in the market. So I do believe that we will be able to improve.

15:13 And also maybe to add to that is something that based on the decision, what we did last year and the work, what we did last year and continue this year, we have been able to maintain the networking capital as a percentage of the net sales at a very competitive level.

15:31 Yeah, that's clear. then maybe a broader question on the pulp market there has been indications of price drop in the global pulp prices so should we if the situation continues should we expect these lower pulp prices come visible already towards year end or should this take place only in 25 on your P&L

16:01 Well, it depends, of course, how quickly that will materialize on the market prices. What is then the sort of lead time? It's usually like a one quarter lead time or so. And after that, we will start seeing it. The inventory is for us, yes, a little bit up. But then again, the turnaround is rather quick. It's rather that it's a lot of power producers are shipping it from the longer term. So I would say that there's roughly one quarter of of a delay or one quarter plus one month depending depending little bit on the inventory levels so that's that's roughly the the cycle there and and this is of course interesting interesting so we have seen estimation on the boat direction so it's it's interesting to see where this will actually which direction it will start going and and as a reminder we have a quite a big part of the business indexed prices on the customer prices so on certain time frame that will come on on on on the selling prices as well or reflect on the selling prices maybe last question uh interesting investment decision on alicante so should we read this as a positive demand outlook for for medium term and uh

17:24 Can you maybe just remind us of the market capacity situation currently in Europe?

17:32 Maybe I can take this so that, you know, in order to look at the sustainable products, we are the frontrunner of developing the sustainable products both in both markets so that if we look at the mayor and also in Americas and of course our recent investments in North America now in Europe it is actually just driving the same thing is something that there is ongoing this chains of the Green Deal, everybody is keen on sustainable products. So this is of course something that once we go forward, so this is the way where we pace, this has been the cornerstone of our strategy in order to drive these more sustainable products. These more sustainable products will grow faster and they will generate a little bit better profitability for us once going forward. and this is a big difference on the products what we currently supply to normal customers mainly based on the mixture of non non let's say plastic fibers with non-plastic fibers of course that portfolio most probably is going to a little bit decrease and that's the area where there is the most competition because of there are many products with some e2 products and we want to differentiate ourselves on the marketplace with this okay thanks that's clear uh thanks that's all from me

19:05 Thank you, Jonny. Very good. Good questions. Thank you. The next question comes from Jonas Ilvenen from Evli. Please go ahead.

19:13 Hi, it's Jonas from Evli. You already touched upon many questions I had, but maybe if I can just continue on the raw materials price question. So pulp prices, like you discussed, I mean, they have been increasing a bit earlier this year and maybe now stabilizing, but

19:33 but how do you see like these other other than power prices these oil-based raw material prices do you have any any feel on those I mean I guess they have been rather more flat this year so far than power prices pretty much yes the the main change that we have seen on on other than that is is really being driven by the possible increases on the logistic costs which was you know the case especially during the time that there was a uh instability in the red sea area and that was reflecting a little bit wider scale on on the logistic cost but other than that i i would i would conquer what you just mentioned right and i think you also kind of implied that america's volume development in h1 was more or less what you expected

20:29 um Have you seen any changes? I mean, when you think about H2, I mean, they have all these seasonal campaigns there during the autumn months. So any updates on that outlook in the US?

20:47 Maybe what we can mention, which was already discussed in the earlier know you know quarterly reviews as well it is something that in order to look at you know the market a little bit that uh it tends to be so that if in uh demand wise uh the second half of the year typically is a little bit stronger than the first half of the year so in in in this respect it is something that market wise and demand wise We expect that actually there is a, it's looking okay. So we can't yet say that it will, is it going to be higher or lower? But I would say that based on this, it's something, it's the situation is normal. So once going forward, so expectations are that we would continue roughly at this pace.

21:41 Right.

21:42 Thanks. That's all from me. Thank you, Jonas. There are no more questions at this time, so I hand the conference back to the speakers.

21:58 Thank you. There are a few questions in the chat. First, let's start with the first three questions from Rauli. I'm going to start with the first one. Was the positive mix impact larger than the negative impact in pricing?

22:18 So yeah, this is a good question. So excellent question is something that in order to look at that. So the net-net in order to look at that at the moment, we could say that, you know, because the new products are growing faster and then once you have 37% of the sales at the moment, I would say that, you know, the new products are roughly, you know, if you look at that percentage, I would say that it is slightly lesser than the impact of the negative ones. So, of course, our aim is to improve the mix, the product portfolio mix, and also in certain areas, also the customer mix, but typically that process is somewhat slower and it depends little bit about the capabilities how quickly you are able to speed up and build up the capability for the new products yes and then the second question

23:25 Are you expecting the price component to turn positive in Q3 already?

23:30 And this is now quite a bit tied with the topics we have been discussing here already earlier in this call. So raw material prices and which direction that market is going, because that is driving directly the prices. I was expecting I think that this was asked during the previous call and I was expecting that during the summer months we would see the kind of shift that direction but now the main question would be that which direction this bulk and fiber prices are heading in the market so I'm leading you know leaving a little bit on the air And depending on that. So if they would start increasing, then I would believe that that is the case. If not, then we probably remain roughly on the same level or a bit lower. So we'll see.

24:23 And then, of course, on top of that are the internal commercial actions, commercial operational actions, what we have in the place where we have been able to state that we have been slightly improving our sales margins. That's correct.

24:38 And then the third question. Given the large investment to Alicante, are you expecting your capex to be above depreciation in 2024 and or 2025? Yes.

24:53 I would say that well we announced also this bet soon a bit smaller investment earlier and with that I would say that likely our investment or capex will be a bit higher than the depreciation during 2024 and driven by this Alicante investment we just announced this morning yes the 25 will be higher than the you know general level of depreciation so answer is likely in 24 and yes in 25 oh yes for the both yes and then there are two questions from Markku Moilanen from Nordia

25:37 The first question is in two parts. In Q2, the sales development was flat in EMEA. How do you see the demand environment developing in the EMEA region in Q3 to Q4? And if you compare the ongoing Q3 to Q2, how would you comment on the development?

25:59 okay this is uh okay two two parts on of the question so let's start first that uh you know looking at a little bit email so once we we talk about uh we need to separate that that once we talk about the market and then once we talk about the sales what we have in our sales sales so like we told the market is normal we can't say that it's not too positive it's there is no headwind there is not tailwind but it's the market situation is tough and based on that of course depending a little bit what the competition is also doing on the market we are a little bit dependent on that which is of course very good because a big part of our sales is auto committed because we have the deals with the big customers so in order to look at that it is something that once we look at so it is a very natural development of our sales based on the activity what we have in the new product releases and the activities what we have our customers so it would be very difficult in in order to compare but I would now say that that that the situation is normal or I could even say that it is expected to continue like this till the end of the year

27:23 Yes, and then the second question, how will you finance the Alicante investment?

27:29 Yes, and this is of course a relevant question. So if we take a look of the balance sheet, so our gas position, so basically net debt position has been fairly strong, but at the same time, understandably, the EBITDA is of course the key. We need to continue the gradual development. And I would say that even speed up the sort of the next steps and stepwise the improvement. And we already discussed a little bit on this networking capital. So we need to be able to free up and monitor that and control that on very efficient way. So I would say that that's really the main items they're impacting. And that is really the own money that we are looking right now for this investment.

28:21 Okay, there is no more questions in the chat. Is there more questions from the lines? As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time.

28:55 Okay, then before we close this session, I would like to remind that our Q3 result is published on November 6th. Thank you for joining and have a nice day.

29:08 Thank you all. Bye-bye.